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Top 10 mistakes when selecting a distribution partner in Asia

Top 10 mistakes when selecting a distribution partner in Asia

Entering any foreign market can be intimidating, doubly so when you are seeking to sell your wares in East Asia. One such headache includes selecting the distribution partners that can most effectively bring your company’s goods to market. Thankfully, Intralink has acquired a wealth of knowledge assisting our clients vet, select, and manage channel partners. In this post, we’ll go through some of the top mistakes we’ve seen in Asia over the years to help potential market entrants avoid common pitfalls.

1. Signing up with the first company you meet. We’ve seen plenty of companies become enchanted with the first distributor they encounter, frequently at trade shows, conferences, or events. Such firms can talk a good talk, often with polished English, but without using other objective criteria to evaluate a potential partner you are opening yourself up to unacceptably high levels of risk.

2. Partnering with the biggest/most conspicuous distributor in the industry. There are advantages to appointing a large channel partner such as well-established industry contacts, marketing clout, and a mature customer base. These strengths, however, can blind you to the drawbacks. For example, how many other companies have an agreement with this distributor? Do any of these products compete with yours? If so, what plan does this partner have to resolve such conflicts?

3. Failure to understand a partner’s sales and/or technical capabilities. Channel partners in Asia often have relationships with one or a handful of large companies. It is essential to understand who these customers are and their demand for your product. You should also ask questions regarding how distributors will design their sales approach for your particular product. Finally, it is critical to establish technical competence. Many of our clients have signed a partner based on the reputation of its CEO – only to find that the people executing sales do not have a firm grasp of the technology.

4. Make sure someone at the company actually speaks English. Initial introductions are sometimes made through intermediaries, creating the illusion of English-speaking ability. We’ve experienced many examples of clients appointing a distributor only to find out that no-one speaks adequate English. We have heard cases where the channel partner has brought in an English-speaking neighbour or relative when the client wanted to have a call. 

5. Not properly benchmarking possible candidates. It is critical to meet with multiple partners before appointing a distributor. This ensures that you are better informed to choose the right partner but also allows you to effectively benchmark and hear various viewpoints on the market. In a typical partner search, Intralink will often interview dozens of distributors, end customers, and other key opinion leaders before making recommendations to clients on how best to design a particular strategy.

6. Giving away exclusivity too easily. Distributors will almost always insist on some form of exclusivity. This can leave you open to a myriad of risks, and should only be considered with significant concessions from a potential partner, e.g. minimum guarantees which, if not achieved, will lead to loss of exclusivity. Additionally, in highly-populated, geographically diverse countries like China, such an approach is even less effective. It might make sense to agree to exclusivity for a certain region or market segment.

7. Failure to establish clear, transparent, and systematic communication from the outset.Western companies are not used to the fact that their Asian partners may not be telling the whole story when it comes to the business, especially around challenges in the market. It is important to establish communication rules and reporting regimes, have frequent calls, and visit customers with channel partners on a regular basis.

8. Not understanding a partner’s business model. Many partners in Asia work with multiple companies and have a portfolio of products/technologies they sell, that sometimes compete. We’ve run into extreme cases where partners sell two competing products, without the knowledge of the suppliers involved, to the same local customer. Not checking a potential partner’s own distribution channel can also be a concern. For instance, are they focused on rural regions when your products are more suitable to an urban environment? Do they rely on direct sales or their own sub-distributors? Usually these issues can be resolved with simple due diligence and internal controls, but are nonetheless recurring themes.  

9. Failure to provide adequate training. We’ve had clients that have run into problems with channel partners simply because they never received proper training on the product or target market. While there will be initial costs associated with training, it will save you time and money in the long term.

10. The enthusiasm gap. Sometimes a partner can check all boxes on paper yet lacks arguably the most important ingredient of all – enthusiasm. A key part of any vetting strategy is not only formulating objective metrics to analyse a partner’s suitability, but also determining how driven they are to win business for you.

About the Author

Micah Hostetter

A native of Virginia, Micah received his BA in East Asian Studies from Dickinson College in the US and a MAIS in International Economics from Johns Hopkins University’s Nanjing campus, graduating with honours from both institutions.

Micah has professional experience both inside and outside of China, having worked for a due diligence firm in the Washington DC area and an equities research firm based in Beijing. He has lived in China for three years and has extensive experience in a variety of industries, including automotive, retail, and renewable energy. He is fluent in Mandarin and is based in Intralink’s Shanghai office.

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